<PAGE>
 
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                -----------------

                                    FORM 10-K

                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                   For the fiscal year ended December 31, 1998
                           Commission File No. 0-13323

                                -----------------

                     NEW ENGLAND LIFE PENSION PROPERTIES II;
                        A REAL ESTATE LIMITED PARTNERSHIP
             (Exact name of registrant as specified in its charter)

             Massachusetts                                04-2803902
     (State or other jurisdiction of                   (I.R.S. Employer
     incorporation or organization)                   Identification No.)

       225 Franklin Street, 25th Floor
           Boston, Massachusetts                              02110
 (Address of principal executive offices)                  (Zip Code)

               Registrant's telephone number, including area code:
                                 (617) 261-9000

           Securities registered pursuant to Section 12(b) of the Act:
                                      None

               Securities registered pursuant to Section 12(g) of the Act:
                      Units of Limited Partnership Interest

                                (Title of Class)

     Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.  

                             Yes [X]    No [ ]

     Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]

     No voting stock is held by nonaffiliates of the Registrant.


                       DOCUMENTS INCORPORATED BY REFERENCE
                       -----------------------------------

                                      None
<PAGE>
 
                                     PART I

Item 1.  Business

         New England Life Pension Properties II; A Real Estate Limited
Partnership (the "Partnership") was organized under the Uniform Limited
Partnership Act of the Commonwealth of Massachusetts on September 15, 1983, to
invest primarily in newly constructed and existing income-producing real
properties.

         The Partnership was initially capitalized with contributions of $2,000
from Copley Properties Company II, Inc. (the "General Partner") and $10,000 from
NELRECO Troy, Inc. (the "Initial Limited Partner"). The Partnership filed a
Registration Statement on Form S-11 (the "Registration Statement") with the
Securities and Exchange Commission on September 21, 1983, with respect to a
public offering of 50,000 units of limited partnership interest at a purchase
price of $1,000 per unit (the "Units") with an option to sell up to an
additional 60,000 Units (an aggregate of $110,000,000). The Registration
Statement was declared effective on November 23, 1983.

         The first sale of Units occurred on June 15, 1984, at which time the
Initial Limited Partner withdrew its contribution from the Partnership.
Investors were admitted to the Partnership thereafter at monthly closings; the
offering of Units terminated on November 23, 1984, and the last group of initial
investors was admitted to the Partnership on November 30, 1984. As of November
30, 1984, a total of 39,917 Units had been sold, a total of 5,980 investors had
been admitted as limited partners (the "Limited Partners") and a total of
$39,654,700 had been contributed to the capital of the Partnership. The
remaining 70,083 units were de-registered on November 30, 1984.

         The Partnership has no employees. Services are performed for the
Partnership by the General Partner and affiliates of the General Partner.

         As of December 31, 1998, the Partnership had disposed of all its real
estate investments. In December 1993, it sold its second investment, an
apartment complex in Grand Rapids, Michigan, which resulted in a capital
distribution of $50.11 per Unit. In 1996 the Partnership sold its third and
fourth investments, two industrial buildings in Elkridge, Maryland and a
research and development building in Los Angeles County, California. These sales
resulted in a capital distribution of $123.85 per Unit on January 30, 1997. In
1997, the Partnership sold its fifth and sixth investments, Willows Shopping
Center in Concord, California and Columbia Warehouse, a research and development
building, in Columbia, Maryland. These sales resulted in capital distributions
of $21,037,855 ($527.04 per Unit) and $1,672,123 ($41.89 per Unit) on October
30, 1997 and November 25, 1997, respectively. In 1998, the Partnership sold its
final investment, a research and development building, in Columbia, Maryland.
This sale resulted in a capital distribution of $16,484,923 ($412.98 per Unit)
on October 29, 1998.


         A. Light Industrial Facilities in Elkridge, Maryland ("Elkridge")

         In 1984 the Partnership acquired two adjacent parcels of land
containing an aggregate of approximately five acres located in Elkridge,
Maryland, for $362,500 and leased them to Dorsey Associates. Situated on the
land were two light industrial buildings. In 1984 the Partnership also made a
$2,062,500 non-recourse mortgage loan to Dorsey Associates, which was secured by
a first mortgage of the buildings and of the leasehold interest in the land.

         On May 14, 1996, one of the buildings was sold and on December 20, 1996
the second building was sold. The Partnership received proceeds of $2,234,022 in
satisfaction of the mortgage loan and ground lease, of which $2,233,755 was
distributed to the Limited Partners as a capital distribution in the amount of
$55.96 per Unit on January 30, 1997.
<PAGE>
 
         B. Industrial/ Research and Development Building in Columbia, Maryland
            ("Oakland")

         The Partnership previously owned a ground leasehold interest in a 2.5
acre parcel of land located in Columbia, Maryland, which was subleased to
Columbia Warehouse Limited Partnership ("CWLP"). Situated on the land was a 
one-story light industrial building. The Partnership purchased the ground
leasehold interest in 1984 for $137,500. The ground lease, as amended on 
June 1, 1989, had an unexpired term of approximately 75 years. Annual rental
under the ground lease was approximately $3,420 and was adjusted at five-year
intervals. The Partnership received an annual rent of $16,500 from the
sublessee, plus an annual percentage rent equal to 75% of gross revenues from
the rental of the building in excess of a base amount. The Partnership was
entitled to receive 75% of the net proceeds from the sale of the entire property
after it recovered its investment in the land and the mortgage loan described
below.

         In 1984 the Partnership also made a $1,062,500 non-recourse mortgage
loan to CWLP that matured on June 29, 1994. The loan was secured by a first
mortgage of the building and of the leasehold interest in the land.
Interest only was payable monthly at the rate of 12% per annum.

         In October 1996, the Partnership reached an agreement in principle with
the borrower on the mortgage loan, whereby the maturity date would be extended
to December 1997. In addition, the fixed interest and ground rental payments
would be reduced, but the Partnership's rate of participation in revenue from
the underlying property would be increased, effective January 1, 1997. Further,
the Partnership would be able to cause a sale of the property.

         On October 27, 1997, the Partnership sold its collective interest in
the Oakland property. The Partnership received proceeds of $1,671,200, of which
$1,672,123 was distributed to the Limited Partners, as a capital distribution
from sale proceeds and reserves, in the amount of $41.89 per Unit on November
25, 1997.

         C. Shopping Center in Concord, California ("Willows Shopping Center")

         On July 30, 1984, the Partnership and an affiliate of the Partnership
(the "Affiliate") jointly made land purchase-leaseback and leasehold mortgage
loan investments aggregating $15,719,317 in a 24.8 acre shopping center known as
The Willows Shopping Center in Concord, California. The Partnership's share of
these investments aggregated $11,789,488, giving the Partnership a 75% interest
in each component of the investment held in common with the Affiliate. The
investments entitled the Partnership and the Affiliate jointly to receive an
annual interest return of 13% on the $10,719,317 ten-year mortgage, together
with an annual fixed rental under the ground lease equal to a 12.2% return on
the $5,000,000 land purchase price plus an annual percentage rental equal to 50%
of the ground tenant's annual gross revenues in excess of specified base
amounts.

         On August 15, 1985, the Partnership and the Affiliate consented to a
sale by the ground tenant, Willows Concord Venture ("Willows Concord"), of the
ground tenant's ownership interest in the buildings and leasehold interest in
the land to an affiliate of VMS Realty, Inc. In conjunction with the sale, the
ground lease was amended to provide that the Partnership and the Affiliate would
no longer participate in excess rental revenues from the Shopping Center or in
net appreciation from the sale of the property. The mortgage loan was also
amended to increase the principal amount by $3,880,683 to $14,600,000, to extend
the maturity date one year to August, 1995, and to lower the interest rate from
13% per annum to a stepped rate beginning at 9% per annum and increasing to 12%
over six years. Under the terms of the original ground lease, the joint ground
lessors were entitled to 50% of the net proceeds from a sale. The Partnership
received cash of $3,215,625 and an interest in the incremental mortgage loan
amount equal to $2,910,512, 50% of which was payable to the former ground lessee
upon full payment of the loan principal by the new mortgagor. The joint
mortgagees also entered into a Collection and Disbursement Agreement pursuant to
which Willows Concord was entitled to share in 
<PAGE>
 
50% of interest paid under the new mortgage note in excess of the interest that
would have been payable under the original note.

         The Partnership and the Affiliate had not received interest payments
currently on the mortgage loan since the payment due for March, 1990, and as a
result, the Partnership and the Affiliate began foreclosure proceedings to take
possession of the property. On October 4, 1990, Pacific First Bank, the second
leasehold mortgagee, filed an involuntary bankruptcy petition in the United
States Bankruptcy Court for the Northern District of California against the
ground lessee/debtor, to which filing the ground lessee/debtor subsequently
consented. The ground lessee/debtor later consented to relief from stay of
foreclosure proceedings. The Partnership and the Affiliate sold their interest
in the leasehold mortgage loan to Willows Concord on June 14, 1991. In return,
the Partnership and the Affiliate took back a note in the amount of $14,863,206.

         Willows Concord foreclosed on the leasehold mortgage on June 18, 1991.
The Partnership, the Affiliate and Willows Concord entered into a replacement
promissory note in the same principal amount of $14,863,206, effective June 18,
1991. The new loan was secured by the leasehold interest, bore interest at the
rate of 9.323% per annum and provided for a reduction in principal if the note
was paid prior to maturity. The Partnership, the Affiliate and Willows Concord
also entered into a new ground lease which provided for annual rent in the
amount of $550,000 plus an annual percentage rent equal to 70% of the ground
lessee's annual gross revenues in excess of a specified amount. The Partnership
had a 75% share of such rent. To the extent that operating cash flow from the
shopping center was not sufficient to pay the ground rent, such rent was
accruable until June 1996 at which time Willows Concord was obligated to pay all
unpaid accrued rent and to pay all future ground rent on a current basis. The
Partnership and the Affiliate had permitted the accrual of additional ground
rent after June 1996, and evaluated various alternatives.

         On January 1, 1995 the Partnership and the Affiliate committed to make
a $2.5 million construction loan to the ground lessee to fund the renovation of
the Center. The Partnership committed to fund $1,875,000 of this amount. The
loan bore interest at 11% per annum, provided for payments of principal and
interest based on a 15-year amortization schedule, and matured on December 31,
1997. In addition, the ground lease was amended to provide the Partnership with
the sole right to cause a sale of the Center on or after January 1, 1996.

         On September 18, 1997, Willows Shopping Center was sold. The
Partnership received proceeds of $21,027,944, which, along with $9,912 from
reserves, was distributed to the Limited Partners as a capital distribution in
the amount of $527.04 per Unit on October 30, 1997

         D. Research and Development Building in Los Angeles County, California
            ("Susana Corporate Center")

         In 1985 the Partnership acquired a 4.02 acre parcel of land in Los
Angeles County, California, for $1,750,000 and leased it back to the seller.
Situated on the land was a one-story, 63,164 square foot research and
development facility leased to a single tenant. In 1985 the Partnership also
made a $3,250,000 non-recourse mortgage loan to the ground lessee. The loan was
secured by a first mortgage on the building and the leasehold interest in the
land.

         During 1993, the Partnership agreed to a restructuring of the ground
lease and the mortgage loan. The mortgage loan was modified to increase the loan
amount by $192,000 to a total of $3,442,000. The increase was made to fund
tenant improvements.

         On October 20, 1996, the Susana Corporate Center was sold. The
Partnership received proceeds of $2,710,014 in satisfaction of its mortgage loan
and ground lease, of which $2,709,965 was distributed to the Limited Partners as
a capital distribution in the amount of $67.89 per Unit on January 30, 1997.
<PAGE>
 
         E. Research and Development Facility in Columbia, Maryland ("Case
            Communications Building")

         The Partnership owned a 19.2 acre parcel of land in Columbia, Maryland,
which it acquired for $2,570,379 and leased back to the seller. A 160,000 square
foot research and development building was constructed on the land. The ground
lease had a term of 60 years and provided for a fixed annual rent of $262,392
plus additional rent equal to 65.864% of gross revenues from the rental of the
building in excess of a base amount. The Partnership was entitled to receive 60%
of the net proceeds from the sale of the entire property after it had recovered
its investment in the land and the mortgage loan described below:

         The Partnership had also fully funded a $8,814,621 non-recourse
mortgage loan to the ground lessee. Interest only was payable monthly at the
rate of 11% per annum. The loan matured on May 1, 1995 and was secured by a
first mortgage of the building and the leasehold interest in the land. The
Partnership has also fully funded an additional $1,000,000 loan. This loan bore
interest at the rate of 14% per annum, was secured by a second mortgage on the
building and leasehold interest in the land and matured simultaneously with the
first mortgage loan described above.

         In October 1996, the Partnership reached an agreement in principle with
the borrower on the mortgage loans, whereby the maturity date was extended to
December 1997. In addition, the fixed interest and ground rental payments were
reduced, but the Partnership's rate of participation in revenue and sales
proceeds from the underlying property was increased, effective January 1, 1997.
The agreement was further amended whereby the Partnership was able to cause a
sale of the property . In October 1997, the Partnership formally executed the
agreement to renew the mortgage loans at the previously agreed upon terms.

         On October 13, 1998, the Case Communication Building was sold. The
Partnership received its share of the net proceeds totaling $18,066,658
representing repayment for its ground lease and mortgage loan investments and
residual proceeds. On October 29, 1998 the Partnership made a capital
distribution of sales proceeds in the amount of $16,484,923 ($412.98 per limited
partnership unit).


Item 3.  Legal Proceedings.

         The Partnership is not a party to, nor are any of its properties
subject to, any material pending legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders.

         No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year covered by this Annual Report on Form 10-K.



                                     PART II

Item 5.  Market for Registrant's Common Equity and Related Stockholder Matters.

         There is no active market for the Units. Trading in the Units is
sporadic and occurs solely through private transactions.

         As of December 31, 1998, there were 5,981 holders of Units.

         The Partnership's Amended and Restated Agreement of Limited Partnership
dated June 15, 1984, as amended to date (the "Partnership Agreement"), requires
that any Distributable Cash (as defined therein) be distributed quarterly to the
Partners in specified proportions and priorities. There are no 
<PAGE>
 
restrictions on the Partnership's present or future ability to make
distributions of Distributable Cash. For the year ended December 31, 1998, cash
distributions paid for 1998 or distributed after year end with respect to 1998
to the Limited Partners as a group totaled $19,403,255 including $16,484,923
($412.98 per limited partnership unit) representing a return of capital from
sales proceeds. For the year ended December 31, 1997, cash distributions paid
for 1997 or distributed after year end with respect to 1997 to the Limited
Partners as a group totaled $25,875,397 including $22,709,978 ($568.93 per
limited partnership unit) representing a return of capital from the proceeds of
property sales and from reserves established with the proceeds of prior sales.

         Distributions of operating cash flow were less than net income in 1998
and 1997. Distributions of operating cash flow were less than cash provided by
operating activities in both years. Reference is made to the Partnership's
Statement of Partners' Capital and Statement of Cash Flows in Item 8 herein.
<PAGE>
 
Item 6.  Selected Financial Data.

<TABLE>
<CAPTION>

                                  For Year            For Year         For Year           For Year            For Year
                                  Ended or            Ended or         Ended or           Ended or            Ended or
                                  As of:              As of:           As of:             As of:              As of:
                                  12/31/98(1)         12/31/97(2)      12/31/96(3)        12/31/95(4)         12/31/94 (5)
                                  -----------         -----------      -----------        -----------         ------------
<S>                               <C>                 <C>              <C>                <C>                 <C>        
Revenues                          $9,499,539          $ 8,635,870      $ 5,238,031        $ 5,313,944         $ 5,061,123

Net Income                        $8,205,863          $ 6,687,557      $ 3,108,675        $ 1,710,797         $ 2,340,707

Net Income per Unit of
Limited Partnership Interest      $   203.52          $    165.86      $     77.10        $     42.43         $     58.05

Total Assets                      $3,515,087          $15,648,034      $40,338,664        $39,074,700         $39,868,957

Total Cash Distributions
per Limited Partnership Unit,
including amounts distributed 
after year end with respect 
to such year                      $   486.09          $    648.23      $    186.13        $     62.28         $    109.84
</TABLE>



(1)      The Partnership sold its final investment in 1998 which resulted in a
         capital distribution of $16,484,923 ($412.98 per unit).

(2)      The Partnership sold two investments in 1997 which resulted in capital
         distributions of $22,709,978 ($568.93 per Unit).

(3)      The Partnership sold two investments in 1996 which resulted in capital
         distributions of $4,943,720 ($123.85 per Unit). The Partnership also
         recorded a credit of $17,291 ($0.43 per Unit) for impaired mortgage
         loans during 1996.

(4)      The Partnership recorded a provision of $1,428,000 ($35.42 per Unit)
         for impaired mortgage loans during 1995.

(5)      The Partnership recorded a provision of $800,000 ($19.84 per Unit) for
         impaired mortgage loans during 1994.
<PAGE>
 
Item 7.

Management's Discussion and Analysis of Financial Condition and Results of
Operations

Liquidity and Capital Resources

         The Partnership completed its offering of units of limited partnership
interest in November, 1984. A total of 39,917 units were sold. The Partnership
received proceeds of $36,296,995, net of selling commissions and other offering
costs, which have been used for investment in real estate and the payment of
related acquisition costs, or retained as working capital reserves. The
Partnership made six real estate investments; all investments have been sold,
one in 1993, two in 1996, two in 1997 and one in 1998. Capital of $49,513,047
($1,240.40 per limited partnership unit) has been returned to the limited
partners through December 31, 1998 as a result of sales and similar
transactions.

         On September 18, 1997, the Willows Shopping Center, in Concord,
California, which was owned by the Partnership (75%) and its Affiliate (25%),
was sold to an institutional buyer (the "Willows Buyer") unaffiliated with the
Partnership. The selling price was determined by arm's length negotiations
between the Partnership and its Affiliate and the Willows Buyer. The total sales
price was $28,575,000. The Partnership received its share of the net proceeds
totaling $21,027,944, after closing costs, and recognized a gain of $3,322,455
($82.40 per limited partnership unit). A disposition fee of $642,937 was accrued
but not paid to AEW Real Estate Advisors Inc. ("AEW"). On October 30, 1997, the
Partnership made a capital distribution of $21,037,856 ($527.04 per limited
partnership unit) from the proceeds of the sale and prior sales proceeds held in
reserves.

         On October 27, 1997, the Oakland property located in Columbia,
Maryland, was sold to an institutional buyer (the "Oakland Buyer") which is
unaffiliated with the Partnership. The selling price was determined by arm's
length negotiations between the Partnership and the Oakland Buyer. The property
was sold for $1,900,000. The Partnership received net proceeds of $1,207,283 in
full satisfaction of its ground lease and mortgage loan investments and related
accrued interest. The Partnership received additional proceeds of $465,756 after
closing costs as its participation share of the remaining proceeds after it
recovered its investment in the land and mortgage loan. The transaction resulted
in a gain of $400,826 ($10.04 per limited partnership unit).

         On October 13, 1998, the Case Communications property located in
Columbia, Maryland was sold to an unaffiliated third party (the " Case Buyer")
for total gross proceeds of $20,008,520. The terms of the sale were determined
by arms-length negotiation between the Case Buyer and AEW on behalf of the
Partnership. The Partnership received its share of the net proceeds totaling
$18,066,658 representing repayment for its ground lease and mortgage loan
investments and residual proceeds. The Partnership recognized a gain of
$6,469,508 ($160.45 per limited partnership unit). On October 29, 1998, the
Partnership made a capital distribution of sales proceeds in the amount of
$16,484,923 ($412.98 per limited partnership unit).

         At December 31, 1998, the Partnership had $3,504,992 in cash and cash
equivalents. The remainder of the cash and cash equivalents is being retained
pending dissolution and liquidation of the Partnership and for working capital
reserves. The adjusted capital contribution was reduced from $172.58 to $0. In
addition, $240.40 per limited partnership unit was also distributed from
reserves and sales proceeds during 1998. Distributions of cash from operations
relating to the first three quarters of 1998 were made at the annualized rate of
24% on the adjusted capital contribution. No distribution from operations was
made in the fourth quarter of 1998. Based on the weighted average adjusted
capital contribution, distributions from operations were made at the annualized
rate of 7% for the first and second quarters of 1997, and 9.5% for the third and
fourth quarters of 1997.
<PAGE>
 
Year 2000 Readiness Disclosure

         The Year 2000 Issue is a result of computer programs being written
using two digits rather than four to define the applicable year. Computer
programs that have date-sensitive software may recognize a date using "00" as
the year 1900 rather than the year 2000. This could result in a system failure
or miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or engage in normal
business operations.

         The Partnership relies on AEW Capital Management L.P. ("AEW Capital
Management"), the parent of AEW Real Estate Advisors, Inc., to generate
financial information and to provide other services, which are dependent on the
use of computers. The Partnership has obtained assurances from AEW Capital
Management that:

         o        AEW Capital Management has developed a Year 2000 Plan (the
                  "Plan") consisting of five phases: inventory, assessment,
                  testing, remediation/repair and certification.

         o        As of September 30, 1998, AEW Capital Management had completed
                  the inventory and assessment phases of this Plan and had
                  commenced the testing and remediation/repair of internal
                  systems.

         o        AEW Capital Management expects to conclude the internal
                  testing, remediation/repair and certifications of its Plan no
                  later than June 30, 1999.

         The Partnership also relies on joint venture partners and/or property
managers to supply financial and other data with respect to its real properties.
The Partnership is in the process of surveying these third party providers and
assessing their compliance with Year 2000 requirements. To date, the Partnership
is not aware of any problems that would materially impact its results of
operations, liquidity or capital resources. However, the Partnership has not yet
obtained written assurances that these providers would be Year 2000 compliant.

         The Partnership currently does not have a contingency plan in the event
of a particular provider or system not being Year 2000 compliant. Such a plan
will be developed if it becomes clear that a provider (including AEW Capital
Management) is not going to achieve its scheduled compliance objectives by June
30, 1999. The inability of one of these providers to complete its Year 2000
resolution process could materially impact the Partnership. In addition, the
Partnership is also subject to external forces that might generally affect
industry and commerce, such as utility or transportation company Year 2000
compliance failures and related service interruptions. Given the nature of its 
operations, the Partnership will not incur any costs associated with Year 2000 
compliance. All such costs are borne by AEW Capital Management and the property
managers.


Results of Operations


Operating Factors

         The two Elkridge buildings and the Susana Corporate Center were sold in
1996.

         As previously discussed, the Willows Shopping Center was sold in
September 1997, and the Partnership recognized a gain of $3,322,455. At the time
of sale, the Willows Shopping Center was 94% leased; at December 31, 1996 and
December 31, 1995, it was 94% and 91% leased, respectively.
<PAGE>
 
         Occupancy at the Oakland property was 88% at October 27, 1997, down
from 91% at December 31, 1996 and December 31, 1995 due to a month-to-month
tenant's vacating during the quarter. The property was sold in October 1997, and
the Partnership recognized a gain of $400,826.

         As previously discussed, the Case Communications property was sold on
October 13, 1998 and the Partnership recognized a gain of $6,469,508. At the
time of the sale, the property was 100% occupied by a government agency as it
had been at December 31, 1997 and December 31, 1996.

         The Partnership's mortgage loans on Oakland and Case Communications
matured in 1994 and 1995, respectively. In October 1996, the Partnership reached
an agreement in principle with the borrowers to extend the maturity dates to
December 1997. In addition, the fixed interest and ground rental payments were
to be reduced, but the Partnership's rate of participation in revenue and sales
proceeds from the underlying properties was to be increased to 80%. In addition,
the Partnership would be able to cause a sale of the properties. In October
1997, the Partnership formally executed an agreement to renew the mortgage loans
at the previously agreed upon terms. As a result of this restructuring, the
Partnership obtained virtually the same risks and potential rewards as ownership
of the asset would entail. Accordingly, the Partnership reported this investment
as an owned property beginning in October 1997.

Investment Results

1998 Compared to 1997

         Interest on cash equivalents and short-term investments in 1998
decreased by approximately $166,000 or 43% compared to 1997, primarily due to
lower average investment balances as a result of the sales in1997 and the sale
of Case Communications in 1998, as previously discussed.

         Total real estate activity was $7,920,912 and $6,656,336 for the twelve
months ended December 31, 1998 and 1997, respectively. This increase of
$1,264,576 is primarily due to the $2,746,227 increase in gain on sale of
investment in 1998 compared to the gain on sale of investments recorded in 1997.
Partially offsetting this is the reduction in ground rental and mortgage loan
income due to the restructuring of Case Communications and the sales in 1997.

         The decrease in operating cash flow of approximately $1,550,000 or 46%,
between 1997 and 1998 is due to the disposition of Case Communications and
changes in working capital.


1997 Compared to 1996

         Interest on cash equivalents and short-term investments in 1997
increased by approximately $84,000 compared to 1996, primarily due to higher
average investment balances as a result of the receipt of the Willows Shopping
Center sales proceeds.

         Exclusive of the 1996 credit from (provision for) impaired mortgage
loans and the operating results from Susana Corporate Center and Elkridge of
$384,239 and $238,235 respectively, real estate results were $2,559,474 in 1996
compared to $6,656,336 in 1997. This increase of $4,096,862 is partially due to
gain on sale of properties in 1997 in the amount of $3,723,281 as well as an
increase in percentage rent for 1997 and an increase in income from Willows
Shopping Center prior to the sale. Additionally, the Partnership recorded net
real estate operations totaling approximately $457,000 during the fourth quarter
of 1997 due to the restructuring of the Case Communications investment.

         The increase in operating cash flow of approximately $52,000 or 2%,
between 1996 and 1997 is due to a decrease in operating liabilities.
<PAGE>
 
Portfolio Expenses

         The Partnership management fee is 9% of distributable cash flow from
operations after any increase or decrease in working capital reserves as
determined by the General Partner. General and administrative expenses primarily
consist of real estate appraisal, printing, legal, accounting and investor
servicing fees.

1998 Compared to 1997

         General and administrative expenses decreased approximately $12,000 or
9%, primarily due to a decrease in legal and appraisal fees for 1998 as a result
of fewer investments. Management fee expense increased by approximately $73,000
in 1998 compared to 1997 due to an increase in distributable cash flow as a
result of special distributions from operational reserves.

1997 Compared to 1996

         General and administrative expenses decreased approximately $7,500 or
5%, primarily due to a decrease in professional fees for 1997 as a result of
fewer investments. Management fee expense decreased by approximately 12% in 1997
compared to 1996 due to a decrease in distributable cash flow.


Inflation

         By their nature, real estate investments tend not to be adversely
affected by inflation. Inflation may result in appreciation in the value of the
Partnership's real estate investments over time if rental rates and replacement
costs increase. Declines in real property values, during the period of
Partnership operations, due to market and economic conditions, have overshadowed
the positive effect inflation may have on the value of the Partnership's
investments.


Item 7A. Quantitative and Qualitative Disclosures about Market Risk

         The Partnership was not party to derivative financial instruments or
derivative commodity instruments at or during the year ended December 31, 1998.
The Partnership's only other financial instruments (as defined by Financial
Accounting Standards Board Statement No. 107) are its cash and cash equivalents
for which cost approximates market value.

Item 8.  Financial Statements and Supplementary Data.

         See the Financial Statements of the Partnership included as a part of
this Annual Report on Form 10-K.

Item 9.  Changes in and Disagreements with Accountants on Accounting and 
         Financial Disclosure.

         The Partnership has had no disagreements with its accountants on any
matters of accounting principles or practices or financial statement disclosure.
<PAGE>
 
                                    PART III

Item 10. Directors and Executive Officers of the Registrant.

         (a) and (b) Identification of Directors and Executive Officers.

         The following table sets forth the names of the directors and executive
officers of the General Partner and the age and position held by each of them as
of December 31, 1998.

Name                         Position(s) with the General Partner       Age
----                         ------------------------------------       ---
J. Christopher Meyer, III    President, Chief Executive Officer 
                               and Director                             51
Pamela J. Herbst             Vice President and Director                43
J. Grant Monahon             Vice President and Director                53
James J. Finnegan            Vice President                             38
Karin J. Lagerlund           Treasurer and Principal Financial and 
                               Accounting Officer                       34

         (c) Identification of Certain Significant Employees.

                  None.

         (d)    Family Relationships.

                  None.

         (e)    Business Experience.

                  The General Partner was incorporated In Massachusetts on
         August 25, 1983. The background and experience of the executive
         officers and directors of the General Partner are as follows:

         J. Christopher Meyer, III joined AEW Real Estate Advisors, Inc.
("AEW"), formerly known as Copley Real Estate Advisors, Inc., in 1987 and has
been an officer at AEW since then. AEW is a subsidiary of AEW Capital
Management, L.P. ("AEW Capital Management"), of which he is also a Director.
Prior to joining AEW, he had senior positions with several regional real estate
development concerns, including Chief Financial Officer of Ford Motor Land
Development Corporation. His career at AEW has included asset management
responsibility for the company's Eastern Region, and portfolio manager for
several commingled real estate funds. Presently, Mr. Meyer has overall
responsibility for all the partnerships advised by AEW whose securities are
registered under the Securities and Exchange Act of 1934, and for several
commingled funds. He received a B.A. in Statistics from Princeton University and
in MBA from the Wharton School of the University of Pennsylvania.

         Pamela J. Herbst directs AEW Capital Management's Institutional Real
Estate Services, with oversight responsibility for the asset and portfolio
management areas. Ms. Herbst is a member of AEW Capital Management's Investment
Policy Group and Management Committee. She came to AEW Capital Management in
December 1996 as a result of the firm's merger with Copley Real Estate Advisors,
Inc. where she held various senior level positions in asset and portfolio
management, acquisitions and corporate operations since 1982. Ms. Herbst is a
graduate of the University of Massachusetts (B.A.) and Boston University
(M.B.A.).

         J. Grant Monahon is AEW Capital Management's General Counsel and a
member of the firm's Management Committee and Investment Policy Group. He has
over 25 years of experience in real estate law and investments. Prior to joining
the predecessor of AEW Capital Management in 1987, Mr. Monahon was a partner
with a major Boston law firm. As the head of that firm's real estate finance
department, he represented a wide variety of institutional clients, both
domestic and international, in complex equity and debt transactions. He is the
former Chairman of the 
<PAGE>
 
General Counsel section of the National Association of Real Estate Investment
Managers. Mr. Monahon is a graduate of Dartmouth College (B.A.) and Georgetown
University Law Center (J.D.).

         James J. Finnegan is the Assistant General Counsel of AEW Capital
Management. Mr. Finnegan served as Vice President and Assistant General Counsel
of Aldrich, Eastman & Waltch, L.P., a predecessor to AEW Capital Management. Mr.
Finnegan has over ten years of experience in real estate law, including seven
years of experience in private practice with major New York City and Boston law
firms. Mr. Finnegan also serves as the AEW's securities and regulatory
compliance officer. Mr. Finnegan is a graduate of the University of Vermont
(B.A.) and Fordham University School of law (J.D.).

         Karin J. Lagerlund directs the Institutional Real Estate Services
Portfolio Accounting Group at AEW Capital Management, overseeing portfolio
accounting, performance measurement and client financial reporting for AEW's
private equity investment portfolios. Ms. Lagerlund is a Certified Public
Accountant and has over ten years in real estate consulting and accounting.
Prior to joining AEW Capital Management in 1994, she was an Audit Manager at
EY/Kenneth Leventhal LLP. Ms. Lagerlund is a graduate of Washington State
University (B.A.).

(f)      Involvement in Certain Legal Proceedings.

         None.

Item 11. Executive Compensation.

         Under the Partnership Agreement, the General Partner and its affiliates
are entitled to receive various fees, commissions, cash distributions,
allocations of taxable income or loss and expense reimbursements from the
Partnership. See Notes 1, 2 and 6 of Notes to Financial Statements.

         The following table sets forth the amounts of the fees and cash
distributions and reimbursements for out-of-pocket expenses which the
Partnership paid to or accrued for the account of the General Partner and its
affiliates for the year ended December 31, 1998:

                                                                     Amount of
                                                                   Compensation
                                                                       and
Receiving Entity                    Type of Compensation           Reimbursement
----------------                    --------------------           -------------

General Partner                     Share of Distributable Cash    $  876,158

AEW Real Estate Advisors, Inc.      Management Fees and               291,542
(formerly known as Copley Real.     Reimbursement of Expenses
Estate Advisors, Inc.)

New England Securities Corporation  Servicing Fees and
                                    Reimbursement of Expenses           9,859
                                                                   ----------
                                    TOTAL                          $1,177,559
                                                                   ==========


         For the year ended December 31, 1998, the Partnership allocated $66,214
of taxable loss to the General Partner.
<PAGE>
 
Item 12. Security Ownership of Certain Beneficial Owners and Management.

         (a) Security Ownership of Certain Beneficial Owners

         No person or group is known by the Partnership to be the beneficial
owner of more than 5% of the outstanding Units at December 31, 1998. Under the
Partnership Agreement, the voting rights of the Limited Partners are limited
and, in some circumstances, are subject to the prior receipt of certain opinions
of counsel or judicial decisions.

         Except as expressly provided in the Partnership Agreement, the right to
manage the business of the Partnership is vested exclusively in the General
Partner.

         (b) Security Ownership of Management.

         An affiliate of the General Partner of the Partnership owned 831 Units
at December 31, 1998.

         (c) Changes in Control.

         There exists no arrangement known to the Partnership the operation of
which may at a subsequent date result in a change in control of the Partnership.

Item 13. Certain Relationships and Related Transactions.

         The Partnership has no relationships or transactions to report other
than as reported in Item 11, above.


                                     PART IV

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.

         (a) The following documents are filed as part of this report:

         (1) Financial Statements--The Financial Statements listed on the
accompanying Index to Financial Statements.

         (2) Financial Statement Schedules--The Financial Statement Schedules
listed on the accompanying Index to Financial Statements and Schedules are filed
as part of this Annual Report.

         (3) Exhibits--The Exhibits listed in the accompanying Exhibit Index are
filed as a part of this Annual Report and incorporated in this Annual Report as
set forth in said Index.

         (b) Reports on Form 8-K: During the quarter ended December 31, 1998,
one Current Report on Form 8-K was filed on October 27, 1998 reporting on Item
No. 2 (Acquisition or Disposition of Assets) and Item No. 7 (Financial
statements and Exhibits), relating in both cases to the October 13, 1998 sale of
Case Communications.
<PAGE>
 
                                New England Life
                             Pension Properties II;

                        A Real Estate Limited Partnership











                              Financial Statements


                                  * * * * * * *












                                December 31, 1998
<PAGE>
 
                     NEW ENGLAND LIFE PENSION PROPERTIES II;
                        A REAL ESTATE LIMITED PARTNERSHIP

                   INDEX TO FINANCIAL STATEMENTS AND SCHEDULES






Report of Independent Accountants

Financial Statements:

         Balance Sheets - December 31, 1998 and 1997

         Statements of Operations - Years ended December 31, 1998, 1997
             and 1996

         Statements of Partners' Capital - Years ended
             December 31, 1998, 1997 and 1996

         Statements of Cash Flows - Years ended December 31, 1998, 1997
             and 1996

         Notes to Financial Statements

Financial Statement Schedules:

         Schedule III - Real Estate and Accumulated
             Depreciation as of December 31, 1998

         Schedule IV - Mortgage Loans on Real Estate
             as of December 31, 1998
<PAGE>
 
                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Partners

New England Life Pension Properties II;
A Real Estate Limited Partnership

In our opinion, the financial statements listed in the accompanying index
present fairly, in all material respects, the financial position of New England
Life Pension Properties II; A Real Estate Limited Partnership (the
"Partnership") at December 31, 1998 and 1997, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of Copley Properties Company II,
Inc., the General Partner of the Partnership; our responsibility is to express
an opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by the General
Partner, and evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for the opinion expressed above.





/s/ PricewaterhouseCoopers  LLP
-------------------------------
Boston, Massachusetts
March 9, 1999
<PAGE>
 
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP

BALANCE SHEETS

                                                 December 31, 
                                          -------------------------
                                             1998          1997        
                                          ----------    -----------
Assets

Real estate investments:
   Property, net                          $        -    $11,660,486
                                          ----------    -----------
                                                   -     11,660,486

Cash and cash equivalents                  3,504,992      2,111,776
Short-term investments                             -      1,844,431
Interest and rent receivable                  10,095         31,341
                                          ----------    -----------

                                          $3,515,087    $15,648,034
                                          ==========    ===========

Liabilities and Partners' Capital

Accounts payable                          $   42,397    $    65,476
Accrued management fee                             -         36,169
Deferred disposition fees                    691,124      1,172,249
                                          ----------    -----------
Total liabilities                            733,521      1,273,894
                                          ----------    -----------

Partners' capital:
  Limited partners ($0 and $172.58 per
    unit at December 31,1998 and 1997, 
    respectively; 110,000 units 
    authorized, 39,917 units issued 
    and outstanding)                       2,619,607     14,261,105
  General partner                            161,959        113,035
                                          ----------    -----------
Total partners' capital                    2,781,566     14,374,140
                                          ----------    -----------
                                          $3,515,087    $15,648,034
                                          ==========    ===========


                (See accompanying notes to financial statements)
<PAGE>
 
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF OPERATIONS

                                                Year ended December 31, 
                                     ----------------------------------------
                                        1998           1997          1996 
                                     ----------     ----------     ----------

Investment Activity

Property rentals                     $2,327,473     $2,960,401     $ 2,364,793
Property operating expenses            (615,342)      (950,646)     (1,029,200)
Depreciation and amortization          (260,727)      (641,035)       (706,119)
                                     ----------     ----------     -----------
                                      1,451,404      1,368,720         629,474

Ground rentals and interest
   on mortgage loans                          -      1,564,335       2,552,474
Credit from impaired
   mortgage loans                             -              -          17,291
                                     ----------     ----------     -----------

   Total real estate operations       1,451,404      2,933,055       3,199,239

Gain on disposition of investments    6,469,508      3,723,281             - 
                                     ----------     ----------     ----------
   Total real estate activity         7,920,912      6,656,336       3,199,239 

Interest on cash equivalents
   and short-term investments           221,433        387,853         303,473

Other income                            481,125              -               -
                                     ----------     ----------     -----------

   Total investment activity          8,623,470      7,044,189       3,502,712
                                     ----------     ----------     -----------

Portfolio Expenses

Management fee                          291,542        218,407         248,355
General and administrative              126,065        138,225         145,682
                                     ----------     ----------     -----------
                                        417,607        356,632         394,037
                                     ----------     ----------     -----------

Net income                           $8,205,863     $6,687,557     $ 3,108,675
                                     ==========     ==========     ===========

Net income per limited
   partnership unit                  $   203.52     $   165.86     $     77.10
                                     ==========     ==========     ===========

Cash distributions per limited
   partnership unit                  $   495.16     $   778.58     $     62.28
                                     ==========     ==========     ===========

Number of limited partnership units
   outstanding during the year           39,917         39,917          39,917
                                     ==========     ==========     ===========



                (See accompanying notes to financial statements)
<PAGE>
 
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>

                                                                      Year ended December 31, 
                                                      ------------------------------------------------
                                                         1998                1997              1996 
                                                      ------------       ------------      -----------
<S>                                                   <C>                <C>               <C>        
Cash flows from operating activities:
   Net income                                         $  8,205,863       $  6,687,557      $ 3,108,675
   Adjustments to reconcile net income to net
      cash provided by operating activities:
      Depreciation and amortization                        260,727            641,035          706,119
      Credit from impaired
        mortgage loans                                           -                  -          (17,291)
      Gain on disposition of investment                 (6,469,508)        (3,723,281)               -
      Increase in deferred leasing costs and
        other assets                                       (67,817)           (33,086)        (348,491)
      Decrease (increase) in operating receivables          21,246            (27,623)         191,725
      Increase in property working capital                (107,311)                 -                -
      Decrease in operating liabilities                    (59,249)          (211,008)        (255,250)
                                                      ------------       ------------      -----------
        Net cash provided by operating activities        1,783,951          3,333,594        3,385,487
                                                      ------------       ------------      -----------

Cash flows from investing activities:
   Net proceeds from sale of investments                18,066,658         20,936,707        2,362,397
   Repayment of mortgage loan investments                        -          1,062,500        2,423,791
   Capital expenditures on owned property                  (22,262)          (763,835)      (1,285,649)
   Decrease in short-term
      investments, net                                   1,844,431             68,487          613,008
   Increase (decrease) in deferred disposition fees       (481,125)           699,937          157,848
                                                      -------------      ------------      -----------
      Net cash provided by
      investing activities                              19,407,702         22,003,796        4,271,395
                                                      ------------       ------------      -----------

Cash flows from financing activity:
   Distributions to partners                           (19,798,437)       (31,103,282)      (2,511,144)
                                                      ------------       -------------     -----------
      Net cash used in financing activity              (19,798,437)       (31,103,282)      (2,511,144)
                                                      ------------       -------------     -----------

Net increase (decrease) in cash and cash
   equivalents                                           1,393,216         (5,765,892)       5,145,738

Cash and cash equivalents:
   Beginning of year                                     2,111,776          7,877,668        2,731,930
                                                      ------------       ------------      -----------

   End of year                                        $  3,504,992       $  2,111,776      $ 7,877,668
                                                      ============       ============      ===========
</TABLE>



Supplemental disclosure of non-cash transaction:

      Effective October 14, 1997, the Partnership`s ground lease/mortgage loan
investment in the Case Communications Building was converted to a wholly-owned
property. The carrying value of this investment at conversion was $11,676,847.

                (See accompanying notes to financial statements)
<PAGE>
 
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP

STATEMENTS OF PARTNERS' CAPITAL




<TABLE>
<CAPTION>

                                                          Year ended December 31,    
                       --------------------------------------------------------------------------------------------
                                   1998                           1997                             1996             
                       ----------------------------    ----------------------------    ----------------------------

                         General         Limited         General         Limited         General          Limited
                         Partner         Partners        Partner         Partners        Partner          Partners
                       ------------    ------------    ------------    ------------    ------------    ------------
<S>                    <C>             <C>             <C>             <C>             <C>             <C>         
Balance at beginning
   of year             $    113,035    $ 14,261,105    $     70,863    $ 38,719,002    $     64,888    $ 38,127,446

Cash distributions          (33,135)    (19,765,302)        (24,704)    (31,078,578)        (25,112)     (2,486,032)

Net income                   82,059       8,123,804          66,876       6,620,681          31,087       3,077,588
                       ------------    ------------    ------------    ------------    ------------    ------------

Balance at end
   of year             $    161,959    $  2,619,607    $    113,035    $ 14,261,105    $     70,863    $ 38,719,002
                       ============     ===========    ============    ============    ============    ============
</TABLE>








                (See accompanying notes to financial statements)
<PAGE>
 
NEW ENGLAND LIFE PENSION PROPERTIES II;
A REAL ESTATE LIMITED PARTNERSHIP

NOTES TO FINANCIAL STATEMENTS

NOTE 1 - ORGANIZATION AND BUSINESS

         General

         New England Life Pension Properties II; A Real Estate Limited
Partnership (the "Partnership") is a Massachusetts limited partnership organized
for the purpose of investing primarily in newly constructed and existing income
producing real properties. It primarily serves as an investment for qualified
pension and profit sharing plans and other entities intended to be exempt from
federal income tax. The Partnership commenced operations in June, 1984 and
acquired six real estate investments through 1986, all of which have been sold
as of December 31, 1998.

         The general partner of the Partnership is Copley Properties Company II,
Inc., a wholly-owned subsidiary of AEW Real Estate Advisors, Inc. ("AEW"),
formerly known as Copley Real Estate Advisors, Inc. ("Copley"). Subject to the
general partner's overall authority, the business of the Partnership is managed
by AEW pursuant to an advisory contract.

         On December 10, 1996, Copley's parent, New England Investment
Companies, Limited Partnership ("NEIC"), a publicly traded master limited
partnership, acquired certain assets subject to then existing liabilities from
Aldrich Eastman & Waltch, Inc. and its affiliates and principals (collectively,
"the AEW operations"). Simultaneously, a new entity, AEW Capital Management,
L.P., was formed into which NEIC contributed its interest in Copley and its
affiliates. As a result, the AEW operations were combined with Copley to form
the business operations of AEW Capital Management, L.P. At year end 1997, NEIC
completed a restructuring plan under which it contributed all of its operations
to a newly formed private partnership, NEIC Operating Partnership, L.P., in
exchange for a general partnership interest in the newly formed entity.
Accordingly, at December 31, 1997, AEW Capital Management, L.P. was wholly owned
by NEIC Operating Partnership, L.P. AEW is a subsidiary of AEW Capital
Management, L.P. Effective April 1, 1998, NEIC changed its name to Nvest, L.P.
and NEIC Operating Partnership, L.P. changed its name to Nvest Companies, L.P.

         Prior to August 30, 1996, New England Mutual Life Insurance Company
("The New England") was NEIC's principal unit holder and owner of all of the
outstanding stock of NEIC's general partner. On August 30, 1996, The New England
merged with and into Metropolitan Life Insurance Company ("Met Life"). Met Life
is the surviving entity and, therefore, through a wholly-owned subsidiary,
became the owner of the units of partnership interest previously owned by The
New England and of the stock of NEIC's general partner.

         At December 31, 1998 and 1997, an affiliate of the general partner
owned 831 units of limited partnership interest which were repurchased from
certain qualified plans within specified annual limitations provided for in the
Partnership Agreement.

         Management

         AEW, as advisor, is entitled to receive stipulated fees from the
Partnership in consideration of services performed in connection with the
management of the Partnership and the acquisition and disposition of Partnership
investments in real property. Partnership management fees are 9% of
distributable cash from operations, as defined, before deducting such fees.
Acquisition fees were paid in an amount equal to 2% of the gross proceeds from
the offering. Disposition fees are limited to the lesser of 3% of the selling
price of the property or 50% of the standard real estate commission customarily
charged by an independent real estate broker. Payment of disposition fees are
subject to the prior receipt by the limited partners of their capital
contributions plus a stipulated return thereon.

         New England Securities Corporation, an indirect subsidiary of Met Life,
is engaged by the Partnership to act as its unit holder servicing agent. Fees
and out-of-pocket expenses for such services totaled $9,859, $9,265 and $8,834
in 1998, 1997 and 1996, respectively.
<PAGE>
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

         Accounting Estimates

         The preparation of financial statements in conformity with generally
accepted accounting principles requires the general partner to make estimates
affecting the reported amounts of assets and liabilities, and of revenues and
expenses. In the Partnership's business, certain estimates require an assessment
of factors not within management's control, such as the ability of tenants to
perform under long-term leases and the ability of the properties to sustain
their occupancies in changing markets. Actual results, therefore, could differ
from those estimates.

         Ground Leases and Mortgage Loans

         While the related land and loan investments are legally separable, the
terms thereof have been negotiated jointly and the investment performance is
evaluated on a combined basis. They are, therefore, presented together in the
accompanying balance sheet and statement of operations.

         Investments in land subject to ground leases are stated at cost, plus
accrued revenue. Investments in mortgage loans to the related ground lessees are
originally stated at cost, plus accrued interest. If the mortgage loan is
impaired (see "Impaired Mortgage Loans" below), the carrying amount is adjusted
to the estimated market value of the underlying collateral less anticipated
costs of sale.

         Impaired Mortgage Loans

         The Partnership considers a loan to be impaired when it is probable
that it will be unable to collect all amounts due under the contractual terms of
the loan agreement. Factors that the Partnership considers in determining
whether a loan is impaired include its past due status, fair value of the
underlying collateral and economic prospects of the borrower. When a loan is
impaired, its carrying value is periodically adjusted, through a valuation
allowance, to its estimated market value which is based on the appraised value
of the underlying collateral less anticipated costs of sale. Changes in the
valuation allowance are reported in the Statement of Operations.

         Property

         Property, including ground lease mortgage loans which are in substance
real estate investments, includes land, building, and improvements which are
stated at cost less accumulated depreciation plus other operating assets and
liabilities. The Partnership's initial carrying value of an investment
previously reported as a ground lease/mortgage loan equals the carrying amount
of the predessor investment at the conversion date.

         The Partnership and an affiliate shared common ownership of the Willows
Shopping Center investment. The form of the investment was a combination ground
lease and mortgage loan, as described above; however, in this case (Willows
Shopping Center), substantial economic risks of property ownership rested with
the Partnership and its affiliate. Accordingly, the investment was accounted for
as owned property, although the Partnership and its affiliate had a priority
claim to all unrecognized contractual revenue. The Partnership's financial
statements include its proportionate ownership share (75%) of the individual
assets, liabilities, revenue and expenses related to the property. Land and
buildings and improvements (net of accumulated depreciation) are classified as
property in the balance sheet.


         Capitalized Costs, Depreciation and Amortization

         Maintenance and repair costs are expensed as incurred. Significant
improvements and renewals are capitalized. Depreciation is computed using the
straight-line method based on estimated useful lives of the buildings and
improvements. Leasing costs are also capitalized and amortized over the related
lease terms.
<PAGE>
 
         Acquisition fees have been capitalized as part of the cost of real
estate investments. Amounts not related to land are being amortized using the
straight-line method over the terms of the mortgage loans or the estimated
useful lives of the property.

         Leases provide for rental increases over the respective lease terms.
Rental revenue is being recognized on a straight-line basis over the lease
terms.

         Realizability of Real Estate Investments

         The Partnership considers a real estate investment to be impaired when
it determines the carrying value of the investment is not recoverable through
estimated undiscounted cash flows generated from the operations and disposal of
the property. The impairment loss is based on the excess of the investment's
carrying value over its fair market value. For investments being held for sale,
the impairment loss also includes estimated costs of sale. Property held for
disposition is not depreciated during the holding period.

         The carrying value of an investment may be more or less than its
current appraised value. At December 31, 1997 the appraised value of the
Partnership's remaining investment exceeded its carrying value by approximately
$1,500,000.

         The appraised value of real estate investments at December 31, 1997 was
estimated by the general partner and was generally based on a combination of
traditional appraisal approaches performed by the Partnership's advisor and
independent appraisers.


         Cash Equivalents and Short-Term Investments

         Cash equivalents are stated at cost, plus accrued interest. The
Partnership considers all highly liquid debt instruments purchased with a
maturity of ninety days or less to be cash equivalents; otherwise, they are
classified as short-term investments.

         The Partnership has the positive intent and ability to hold all
short-term investments to maturity; therefore, short-term investments are
carried at cost, plus accrued interest, which approximates market value. At
December 31, 1997, all short-term investments were in commercial paper with less
than three months remaining to maturity.

         Deferred Disposition Fees

         As discussed in Note 1, disposition fees due to AEW related to sales or
restructuring of investments are included in the determination of gains or
losses resulting from such transactions. According to the terms of the advisory
contract, payment of such fees had been deferred until the limited partners
first received their capital contributions, plus stipulated returns thereon.
Upon the sale of the Partnership's remaining real property asset during the
fourth quarter of 1998 (as discussed in Note 4), and as required by the
Partnership Agreement, the General Partner performed an analysis of standard
real estate commissions customarily charged by independent real estate brokers
and determined that $691,124 of the previously accrued disposition fee of
$1,172,249 was payable, and, therefore the remaining $481,125 would not be paid
and, accordingly, reversed such fees in 1998. As a result, previously accrued
disposition fees payable to AEW totaling $481,125 ($11.93 per limited
partnership unit) were reversed and recorded as Other Income in 1998. The
accrued disposition fees of $691,124 were paid to AEW in January 1999.
<PAGE>
 
         Income Taxes

         A partnership is not liable for income taxes and, therefore, no
provision for income taxes is made in the financial statements of the
Partnership. A proportionate share of the Partnership's income is reportable on
each partner's tax return.

         Per Unit Computations

         Per unit computations are based on the number of units of limited
partnership interest outstanding during the year. The actual per unit amount
will vary by partner depending on the date of admission to, or withdrawal from,
the Partnership.

         Segment Data

         Effective January 1, 1998, the Partnership adopted Financial Accounting
Standards Board Statement No. 131, "Disclosure about Segments on an Enterprise
and Related Information" (FAS 131). Based on the criteria established in FAS
131, the Managing General Partner has determined that the Partnership operates
in one operating segment which is investing in real estate properties which are
domiciled in the United States of America.

NOTE 3 - INVESTMENTS IN GROUND LEASES AND MORTGAGE LOANS

         Research and Development Facility in Columbia, Maryland ("Case
         Communications Building")

         The Partnership owned a 19.2 acre parcel of land in Columbia, Maryland,
which it acquired for $2,570,379 and leased back to the seller. A 160,000 square
foot research and development building was constructed on the land. The ground
lease had a term of 60 years and provided for a fixed annual rent of $262,392
plus additional rent equal to 65.864% of gross revenues from the rental of the
building in excess of a base amount. The Partnership was entitled to receive 60%
of the net proceeds from the sale of the entire property after it had recovered
its investment in the land and the mortgage loan.

         The Partnership also fully funded an $8,814,621 non-recourse mortgage
loan to the ground lessee. Interest only was payable monthly at the rate of 11%
per annum. The loan matured on May 1, 1995 and was secured by a first mortgage
of the building and the leasehold interest in the land. The Partnership also
fully funded an additional $1,000,000 loan. This loan bore interest at the rate
of 14% per annum, was secured by a second mortgage on the building and leasehold
interest in the land and matured simultaneously with the first mortgage loan
described above.

         In October 1996, the Partnership reached an agreement in principle with
the borrower on the mortgage loan to extend the maturity date to December 1997.
In addition, the fixed interest and ground rental payments were to be reduced to
9.5%, but the Partnership's rate of participation in revenue from the underlying
property was to be increased, effective January 1, 1997. Further, the
Partnership was to be able to cause a sale of the property. In October 1997, the
Partnership formally executed the agreement (the "Case Agreement") to renew the
mortgage loans at the previously agreed upon terms.

         As a result of the execution of the Case Agreement which, amongst other
things, increased the Partnership's participation in revenues and residual
proceeds from sale of the collateral to 80% and granted the Partnership the
ability to force a sale, the Partnership converted this investment to an owned
"Property" effective in the fourth quarter of 1997. Net real estate operations
for the fourth quarter of 1997 amounted to approximately $455,000 for the Case
Communications Building.

         As discussed in Note 4, the Partnership sold the Case Communications
Building on October 13, 1998.
<PAGE>
 
         Industrial/ Research and Development Building in Columbia, Maryland
         ("Columbia")

         In 1984, the Partnership purchased the ground leasehold interest in a
2.5 acre parcel of land located in Columbia, Maryland, which was subleased to
Columbia Warehouse Limited Partnership ("CWLP") for $137,500. The ground lease,
as amended on June 1, 1989, had an unexpired term of approximately 75 years.
Annual rental under the ground lease was approximately $3,420 and was adjusted
at five-year intervals. The Partnership received an annual rent of $16,500 from
the sublessee, plus an annual percentage rent equal to 75% of gross revenues
from the rental of the building in excess of a base amount. The Partnership was
entitled to receive 75% of the net proceeds from the sale of the entire property
after it recovered its investment in the land and the mortgage loan described
below.

         In 1984 the Partnership also made a $1,062,500 non-recourse mortgage
loan to CWLP that matured on June 29, 1994. The loan was secured by a first
mortgage of the building and of the leasehold interest in the land. Interest
only was payable monthly at the rate of 12% per annum.

         In October 1996, the Partnership reached an agreement in principle with
the borrower on the mortgage loan to extend the maturity date to December 1997.
In addition, the fixed interest and ground rental payments would be reduced, but
the Partnership's rate of participation in revenue from the underlying property
would be increased to 80%. The Partnership would also be able to cause a sale of
the property. In October 1997, the Partnership formally executed the agreement
to renew the mortgage loan at the previously agreed upon terms.

         On October 27, 1997, the Partnership sold the Columbia property for
$1,900,000. The selling price was determined by arm's length negotiations
between the Partnership and the buyer. The Partnership received its share of the
net proceeds totaling $1,671,200, after closing costs and repayment of the
ground lease investment and mortgage loan, and recognized a gain of $400,826
($10.04 per limited partnership unit). A disposition fee of $57,000 was accrued
but not paid to AEW. On November 25, 1997, the Partnership made a capital
distribution of $1,672,123 ($41.89 per limited partnership unit) from the
proceeds of the sale and reserves.

         The following is a summary of the Partnership's investments in the Case
Communications and Columbia Warehouse ground leases and mortgage loans:


                                             December 31     December 31, 
                                                1998            1997
                                             ------------    -----------

Cash invested                                $         -    $ 13,585,000

Unamortized
  acquisition costs and fees, net                      -          12,755

Accrued ground lease and
  mortgage loan receivables                            -          92,467

Sale of Collateral (Columbia Warehouse)                -      (1,213,375)

Valuation allowance for
  impaired mortgage loans                              -        (800,000)

Transfer to wholly-owned property
(Case Communications Building)                         -     (11,676,847)
                                            ------------    ------------
                                            $          -    $          -
                                            ============    ============
<PAGE>
 
         Sale of Elkridge Buildings

         One of the two Elkridge buildings was sold on May 14, 1996. The second
building was sold on December 20, 1996. The net proceeds received by the
Partnership were used to repay the ground lease investment and the carrying
value of the mortgage loan. Since the mortgage loan was impaired, its carrying
value had been previously reduced to estimated fair market value, less
anticipated costs of sale and thus no gain or loss on the sale was recognized.
The total valuation allowance was $476,377, including $91,377 provided in 1996,
which included a disposition fee of $70,848 payable to AEW. On January 30, 1997,
the Partnership made a capital distribution to the limited partners in the
aggregate amount of $2,233,755 ($55.96 per limited partnership unit).

         Sale of Susana Corporate Center

         The Susana Corporate Center in Los Angeles, California was sold on
October 23, 1996. The net proceeds received by the Partnership were used to
repay the ground lease investment and the carrying value of the mortgage loan.
Since the mortgage loan was impaired, its carrying value had been previously
reduced to estimated fair market value, less anticipated costs of sale and thus
no gain or loss on the sale was recognized. The total valuation allowance was
$2,604,332, including $191,332 provided in 1996, which included a disposition
fee of $87,000 payable to AEW. On January 30, 1997, the Partnership made a
capital distribution to the limited partners in the aggregate amount of
$2,709,965 ($67.89 per limited partnership unit).

         Valuation Allowance

         The activity in the valuation allowance during 1997, together with the
related recorded and carrying values of the impaired mortgage loans at the
beginning and end of the year, are summarized in the table below.

                                   Recorded        Valuation      Carrying
                                     Value         Allowance        Value
                                     -----         ---------        -----

Balance at January 1, 1997       $  9,907,088      $(800,000)   $ 9,107,088
                                 ============      =========    ===========

Transfer to wholly-owned
  property (Case
  Communications)                  (9,907,088)       800,000     (9,107,088)

Balance at December 31, 1997     $         --      $      --    $        --
                                 ============      =========    ===========

         Except for the effect of the mortgage loan restructuring, the average
recorded value of the impaired mortgage loans did not differ materially from the
balances at the end of each period. As a result of the restructuring, the
valuation allowance of $800,000 was charged off against the basis of the
property investment at the conversion date.

NOTE 4 - INVESTMENTS IN PROPERTIES

         Case Communications Building, Columbia Maryland

         As described in Note 3, the Partnership previously held the Case
Communications Building investment as a combination ground lease/mortgage loan.
As a result of a restructuring of this investment in October 1997, the
Partnership acquired virtually the same risks and potential rewards that
ownership of the property would entail. Accordingly, in October 1997, the
Partnership commenced accounting for this investment as an owned property.
<PAGE>
 
         On October 13, 1998, the Partnership sold the property Case
Communications property to an unaffiliated third party (the " Case Buyer") for
total gross proceeds of $20,008,520. The terms of the sale were determined by
arms-length negotiation between the Case Buyer and AEW, on behalf of the
Partnership. The Partnership received its share of the net proceeds totaling
$18,066,658 representing repayment of its ground lease and mortgage loan
investments and residual proceeds. The Partnership recognized a gain of
$6,469,508 ($160.45 per limited partnership unit). On October 29, 1998 the
Partnership made a capital distribution of sales proceeds in the amount of
$16,484,923 ($412.98 per limited partnership unit).

         Willows Shopping Center, Concord, California

         The Willows Shopping Center investment (the "Willows"), acquired in
1984, was owned jointly with an affiliate of the Partnership (the "Affiliate");
the Partnership had a 75% ownership share. The ground lessee/mortgagor stopped
paying interest on the mortgage loan as of March 1990. As a result, the
Partnership and its Affiliate began foreclosure proceedings to take possession
of the property. A protracted series of legal interactions ensued, including the
filing of an involuntary bankruptcy petition by the second leasehold mortgagee.
In June 1991, the Partnership and its Affiliate sold the mortgage note to the
original owner of the Willows, which in turn undertook and completed the
foreclosure action. The Partnership and its Affiliate received a new mortgage
note; the principal related to the Partnership's share was $11,147,406. The note
bore interest at 9.323% per annum, payable monthly; however, it could accrue
with interest compounded at 11%. The loan had a maturity date of June 18, 2001.
The original owner also assumed the ground lease. The ground lease provided for
annual rental payments to the Partnership of $412,500. Rental payments were
accruable through June 1996, with interest compounding at 11%; however, the
Partnership had permitted additional accrual beyond that date as it evaluated
various alternatives. The ground lease also provided for participation rentals
at 70% of gross revenues in excess of a base amount to the Partnership and its
Affiliate.

         In connection with a major renovation of the property, on January 1,
1995, the Partnership and its Affiliate committed to make a construction loan to
the ground lessee in the amount of $2,500,000. This loan was also accounted for
as an investment in property. The Partnership's share was $1,875,000, of which
$927,540 had been funded as of December 31, 1996. Interest accrued at 11%
compounded monthly; debt service payments began on January 1, 1996, including
principal payments based upon a 15-year amortization schedule. In addition, the
ground lease was amended to provide that after January 1, 1996, the Partnership
and the Affiliate could, at their sole discretion, offer the entire property for
sale.

         On September 18, 1997, the Willows Shopping Center was sold to an
institutional buyer (the " Willows Buyer") unaffiliated with the Partnership.
The selling price was determined by arm's length negotiations between the
Partnership and its Affiliate and the Willows Buyer. The total sales price was
$28,575,000. The Partnership received its share of the net proceeds totaling
$21,027,944, after closing costs, and recognized a gain of $3,322,455 ($82.40
per limited partnership unit). A disposition fee of $642,937 was accrued but not
paid to AEW. On October 30, 1997, the Partnership made a capital distribution of
$21,037,856 ($527.04 per limited partnership unit) from the proceeds of the sale
and reserves.
<PAGE>
 
         The following is a summary of the Partnership's investment in property:

                                                   December 31,
                                         ---------------------------------
                                              1998                1997      
                                         -------------       -------------

Land                                     $           -       $   2,581,367
Buildings and Other Assets, net                      -           9,079,119
                                         -------------       -------------

Net Carrying Value                       $           -       $  11,660,486
                                         =============       =============


         The net carrying value at December 31, 1997 relates solely to the Case
Communications Building.

         The buildings and improvements were being depreciated over 30 years
using the straight-line method.


NOTE 5 - INCOME TAXES

         The Partnership's income for federal income tax purposes differs from
that reported in the accompanying statement of operations as follows:

                                             Year ended December 31, 
                                 --------------------------------------------
                                      1998            1997            1996
                                 ------------    -------------   ------------

Net income per financial
    statements                   $  8,205,864    $   6,687,557   $  3,108,675
Timing differences:
    Ground rent and mortgage
       loan interest (1)             (930,931)       1,208,197      1,800,239
    Valuation allowances                    -                -         17,291
    Loss on sale                     (653,487)     (11,764,860)    (3,919,175)
                                 -------------   -------------   ------------

Taxable income (loss)            $  6,621,446    $  (3,869,106)  $  1,007,030
                                 ============    =============   ============

 (1)     Represents additional contractual revenue recognized for tax purposes
         related to the Willows Shopping Center, Elkridge, and Susana Corporate
         Center.


NOTE 6 - PARTNERS' CAPITAL

         Allocations of net income (losses) from operations and distributions of
distributable cash from operations, as defined, are in the ratio of 99% to the
limited partners and 1% to the general partner. Cash distributions are made
quarterly.

         Net sales proceeds and financing proceeds are allocated first to
limited partners to the extent of their contributed capital plus a stipulated
return thereon, as defined, second to pay disposition fees, and then 85% to the
limited partners and 15% to the general partner. As a result of such
transactions the adjusted capital contribution per limited partnership unit was
reduced from $1,000 to $940 during 1985 to $889.89, during 1994, to $172.58
during 1997, and to $220.40 per Unit in excess of the Invested Capital has been
returned to the Limited Partnerships during 1998. Income from a sale is
allocated in proportion to the distribution of related proceeds, provided that
the general partner is allocated at least 1%. Income or losses from a sale, if
there are no residual proceeds after the repayment of the related debt, will be
allocated 99% to the limited partners and 1% to the general partner.
<PAGE>
 
NOTE 7 - SUBSEQUENT EVENT

         On January 28, 1999, the Partnership made an initial liquidating
distribution in the aggregate amount of $1,693,359. Of this distribution,
$846,679 was distributed to investors who are part of the Partnership's Early
Investor Incentive Program (the "Program") in the amount of $62.32 per limited
partnership unit. The remaining $846,679 was paid to the General Partner, as its
share of the initial liquidating distribution in accordance with the terms of
the Program.
<PAGE>
 
                     NEW ENGLAND LIFE PENSION PROPERTIES II
                        A REAL ESTATE LIMITED PARTNERSHIP
                                                                    SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                             AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>

                                                              Costs Subsequent                        Gross amount at which
                                   Initial Costs               to Aquisitions                      Carried at Close of Period
                                ----------------------------------------------                     --------------------------
                                             Land                                   Adjustment in                                   
                       Encum -             Buildings &    Building &               Land Investment              Buildings &   
Description            brances     Land    Improvements  Improvements    Other  due to Restructuring   Land     Improvements Other  
------------------------------------------------------------------------------------------------------------------------------------
<S>                    <C>      <C>             <C>       <C>          <C>           <C>            <C>         <C>         <C>     

Industrial Building
 Buildings
 Columbia, Maryland    Note A    2,618,087       0         9,174,381    175,128       (36,720)       2,581,367   9,174,381   175,128


                       -------------------------------------------------------------------------------------------------------------


             Total              $2,618,087      $0        $9,174,381   $175,128      ($36,720)      $2,581,367  $9,174,381  $175,128

------------------------------------------------------------------------------------------------------------------------------------

</TABLE>

                       [WIDE TABLE CONTINUED FROM ABOVE]

<TABLE>
<CAPTION>
                                            Accumulated                                                           
                                          Depreciation                                       Date      Depreciable
Description                    Total     & Amortization    Dispositions        Total       Acquired        Life   
------------------------------------------------------------------------------------------------------------------
<S>                        <C>             <C>            <C>             <C>             <C>             <C>
Industrial Building                                                                                               
 Buildings                                                                                                        
 Columbia, Maryland         11,930,876      (333,727)      (11,597,149)    (11,930,876)    05/02/85         --    
                                                                                                                  
                       -------------------------------------------------------------------------------------------
                                                                                                                  
             Total         $11,930,876     ($333,727)     ($11,597,149)   ($11,930,876)                           
------------------------------------------------------------------------------------------------------------------
</TABLE>

            Notes:
         (A) All senior mortgages on the properties are held by New England Life
             Pension Properties II

         (B) Additions in 1997 relate to Mortgage loan restructuring described
             in Footnote - 3 in Notes to the Financial Statements

<TABLE>
<CAPTION>
       Reconciliation of real estate owned:          1995            1996            1997           1998

                              <S>             <C>             <C>             <C>            <C>        
                                              $21,318,333     $22,565,670     $22,460,406    $11,733,486
                              Acquisitions      1,247,337       2,049,486       9,115,399        197,390
                              Dispositions              0      (2,154,750)    (19,842,319)   (11,930,876)
                                             -----------------------------------------------------------

                                              $22,565,670     $22,460,406     $11,733,486             $0
                                             ===========================================================



                                               $1,740,992      $2,299,292       2,938,527         73,000
                                                  555,128         636,063         553,523        258,348
                                                    3,172           3,172           3,172          2,379
                                                                               (3,422,222)

                                               $2,299,292      $2,938,527          73,000        333,727
                                             ===========================================================
</TABLE>
<PAGE>
 
                     NEW ENGLAND LIFE PENSION PROPERTIES II

                             NOTE A TO SCHEDULE III
                             AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>

Reconciliation of Real                                  1998         1998                                       ACCUMULATED  
     Estate Owned           COST     CONVERSION TO   INVESTMENT   INCREASE IN    1995 DECREASE       COST      AMORTIZATION &
                           AS OF      WHOLLY-OWNED       IN        DEFERRED       IN PROPERTY     BALANCE AT    DEPRECIATION 
     DESCRIPTION          12/31/97      PROPERTY      PROPERTY   LEASING COSTS  WORKING CAPITAL    10/13/98    AS OF 12/31/97
-----------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                            <C>          <C>             <C>          <C>               <C>       
 CASE COMMUNICATIONS    $11,733,486                    $22,262      $67,817         $107,311     $11,930,876       $73,000   
                                                                                                                             
</TABLE>

                       [WIDE TABLE CONTINUED FROM ABOVE]

<TABLE>
<CAPTION>

Reconciliation of Real       1998        ACCUMULATED                                               
     Estate Owned       AMORTIZATION &  AMORTIZATION &    10/13/98                       12/31/98  
                         DEPRECIATION    DEPRECIATION     PROPERTY       DISPOSITIONS    PROPERTY  
     DESCRIPTION           EXPENSE      AS OF 10/13/98      NET 8            1998          NET     
---------------------------------------------------------------------   --------------  ---------- 
<S>                       <C>              <C>           <C>            <C>                   <C>  
 CASE COMMUNICATIONS      $260,727         $333,727      $11,597,149    ($11,597,149)         $0   

</TABLE>
<PAGE>
 
                     NEW ENGLAND LIFE PENSION PROPERTIES II
                        A REAL ESTATE LIMITED PARTNERSHIP
                                                                     SCHEDULE IV
                          MORTGAGE LOANS ON REAL ESTATE
                             AS OF DECEMBER 31, 1998

<TABLE>
<CAPTION>

                                                Final      Periodic
                                Interest      Maturity     Payment       Prior     Face Amount
Description                       Rate          Date        Terms        Liens     of Mortgage
--------------------------   --------------  ----------  -----------  -----------  -----------
<S>                          <C>              <C>        <C>            <C>         <C>
Research and Development
 Buildings                            9.50%               Interest
 Columbia, Maryland          (See Note 3)      05/01/95    Monthly          --       8,814,621
                                                          Principal
                                                         at Maturity


                                     14.00%               Interest
                             (See Note 3)      05/01/95    Monthly          --       1,000,000
                                                          Principal
                                                         at Maturity


                             --------------  ----------  -----------  -----------  -----------
    Total                                                                          $ 9,814,621
                             ==============  ==========  ===========  ===========  ===========
                                                                1995         1996         1997

        Balance at beginning of period                   $14,126,658  $12,691,267   10,169,588
        Reclass of accrued interest receivable                     -       92,467
        Valuation allowance for impaired mortgage loans   (1,428,000)      17,291
        Amortization                                          (7,391)           0
        Reclass to wholly-owned property                           -            -   (8,107,088)
        Dispositions                                                   (2,631,437)  (2,062,500)
                                                         -----------  -----------  -----------

        Balance at end of period                         $12,691,267  $10,169,588  $         0
                                                         ===========  ===========  ===========
</TABLE>

        Notes:

        (1) Represents the reclass of the Partnership's mortgage loan
            investment to Property (see Footnote - 3 in Notes to
            Financial Statement)


                       [WIDE TABLE CONTINUED FROM ABOVE]

<TABLE>
<CAPTION>

                                             Valuation                                          
                                             Allowance      Accrued                  Carrying   
                             Disposition    for Impaired    Interest    Reclass (1)  Amount of  
Description                                Mortgage Loans  Receivable                Mortgage   
--------------------------   ------------  --------------  ----------  ------------  ---------  
<S>                          <C>              <C>           <C>         <C>           <C>
Research and Development                                                                        
 Buildings                                                                                      
 Columbia, Maryland                  --        (800,000)      92,467    (8,107,088)        $0   
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                              (1,000,000)           --            --                       $0   
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                                                                                                
                             ------------  --------------  ----------  ------------  ---------  
    Total                    ($1,000,000)     ($800,000)     $92,467   ($8,107,088)  $      0   
                             ============  ==============  ==========  ============  =========  
</TABLE>
<PAGE>
 
                                  EXHIBIT INDEX
                                  -------------


Exhibit                                                                    Page
Number                                                                    Number
------                                                                    ------

4.       Amended and Restated Agreement of Limited Partnership               *
         of New England Life Pension Properties II; A Real Estate
         Limited Partnership (filed as Exhibit 28A to Form 8-K dated
         June 15, 1984, as filed with the Commission on June 25, 1984).

10A.     Form of Escrow Deposit Agreement among the Registrant,              *
         NEL Equity Services Corporation and The Bank of Boston
         (filed as Exhibit 10A to the Registrant's Registration
         Statement on Form S-11, file no. 2-86659 [the "Registration
         Statement"]).

10B.     Form of Advisory Contract between the Registrant and                *
         Copley Real Estate Advisors, Inc. (filed as Exhibit 10B
         to the Registration Statement).

10C.     Confirmatory Ground Sublease, dated as of June 29, 1984,            *
         between the Registrant, as Lessor, and Columbia Warehouse
         Limited Partnership ("Columbia"), as Lessee [filed as
         Exhibit 10D to Post-Effective Amendment No. 1 to the
         Registration Statement, dated August 23, 1984
         ("Post-Effective Amendment No. 1")].

10D.     Promissory Note, dated June 29, 1984, in the principal amount       *
         of $1,062,500 from Columbia to the Registrant (filed as
         Exhibit 10E to Post-Effective Amendment No. 1).

10E.     Deed of Trust, dated June 29, 1984, by and between Columbia         *
         and the Trustees named therein (filed as Exhibit 10F to Post-
         Effective Amendment No. 1.).

10F.     Confirmatory Ground Lease, dated as of June 29, 1984                *
         between the Registrant, as Lessor, and Dorsey Associates
         ("Dorsey"), as Lessee (filed as Exhibit 10G to Post-
         Effective Amendment No. 1.).

10G.     Promissory Note, dated June 29, 1984, in the principal amount of    *
         $2,062,500 from Dorsey to the Registrant (filed as Exhibit 10H
         to Post Effective Amendment No. 1).

10H.     Deed of Trust, dated June 29, 1984, by and between Dorsey and       *
         the Trustees named therein (filed as Exhibit 10I to Post-
         Effective Amendment No. 1).

10I.     Deed of Trust and Security Agreement, dated as of July 30, 1984,    *
         among Willows Concord Venture, as Grantor, El Camino
         Title Company, as Trustee, and New England Life Pension
         Properties; A Real Estate Limited Partnership and the Registrant,
         as Beneficiaries (filed as Exhibit 28.1 to Form 8-K dated July 29,
         1984, as filed with the Commission on August 4, 1984).
<PAGE>
 
Exhibit                                                                    Page
Number                                                                    Number
------                                                                    ------

10J.     Ground Lease dated as of July 30, 1984, between Willows             *
         Concord Venture, as Lessee, and New England Life Pension
         Properties; A Real Estate Limited Partnership and the
         Registrant, as Lessors (filed as Exhibit 28.2 to Form 8-K
         dated July 29, 1984, as filed with the Commission on August
         14, 1984).

10K.     Ground Lease dated as of December 21, 1984, between the             *
         Registrant, as Lessor, and Susana Partners '82 ("Susana") as
         Lessee (filed as Exhibit 10(i)a to Form 8-K dated February 4,
         1985, as filed on or about February 15, 1985, as amended).

10L.     Deed of Trust and Security Agreement dated as of December 21,       *
         1984, among the Registrant, as Grantee, Susana, as Grantor,
         and First American Title Insurance Company, as Trustee (filed
         as Exhibit 10(i)b to Form 8-K dated February 15, 1985, as
         amended).

10N.     Mortgage and Security Agreement, dated as of September 26,          *
         1985, by and between Oxford Place Apartments Limited
         Partnership, Mortgagor, and the Registrant, Mortgagee, in the
         amount of $4,250,000.

10O.     Promissory Note, dated as of September 26, 1985, in the             *
         principal amount of $4,250,000 from the Registrant to Oxford
         Place Apartments Limited Partnership.

10P.     Ground Lease dated as of September 26, 1985 between the             *
         Registrant, as Landlord and Oxford Place Apartments Limited
         Partnership, as Tenant.

10Q.     Contract of Sale dated as of September 26, 1985, by and             *
         between Oxford Apartments Limited Partnership, Seller, and the
         Registrant, Purchaser.

10R.     Letter Agreement between New England Life Pension Properties;       *
         A Real Estate Limited Partnership, the Registrant and Willows
         Concord Venture dated June 14, 1991.

10S.     Promissory Note dated July 14, 1991 in the principal amount of      *
         $14,863,206.38 from Willows Concord Venture to New England
         Life Pension Properties; A Real Estate Limited Partnership and
         the Registrant.

10T.     Assignment of Note and Liens Including Deed of Trust dated as       *
         of June 13, 1991 by New England Life Pension Properties; A
         Real Estate Limited Partnership and the Registrant to Willows
         Concord Venture.

10U.     Assignment of VMS Loan Documents dated June 14, 1991 by             *
         Willows Concord Venture to New England Life Pension
         Properties; A Real Estate Limited Partnership and the
         Registrant.
<PAGE>
 
Exhibit                                                                    Page
Number                                                                    Number
------                                                                    ------

10V.     Deed of Trust and Security Agreement dated June 13, 1991 between    *
         Willows Concord Venture, as Trustor; Chicago Title Company,
         as Trustee; and New England Life Pension Properties; A Real
         Estate Limited Partnership and the Registrant, as Beneficiary.

10W.     Assignment of Leases and Rents dated June 13, 1991 by Willows       *
         Concord Venture to New England Life Pension Properties;
         A Real Estate Limited Partnership and the Registrant.

10X.     Amended and Completely Restated Ground Lease dated effective        *
         as of June 18, 1991 between Registrant, New England Life
         Pension Properties II; A Real Estate Limited Partnership
         and Willows Concord Venture.

10Y.     Amended and Restated Secured Promissory Note effective as of        *
         June 14, 1991, in the principal amount of $14,863,206.38 from
         Willows Concord Venture to the Registrant and New England Life
         Pension Properties II; A Real Estate Limited Partnership.

10Z.     Modification Agreement and First Amendment to Loan Documents        *
         dated August 13, 1991, by and between Willows Concord Venture,
         the Registrant and New England Life Pension Properties II; A
         Real Estate Limited Partnership.

10AA.    Modification Agreement and Second Amendment to Loan Documents       *
         dated September 12, 1991, by and between Willows Concord
         Venture, the Registrant and New England Life Pension
         Properties II; A Real Estate Limited Partnership.

10BB.    Modification Agreement and Third Amendment to Loan Documents        *
         dated October 15, 1991, by and between Willows Concord
         Venture, the Registrant and New England Life Pension
         Properties II; A Real Estate Limited Partnership.

10CC.    Fourth Amendment to Loan Documents dated December 17, 1992 by       *
         and between Willows Concord Venture Registrant and New England
         Life Pension Properties II; A Real Estate Limited Partnership.

10DD.    Special Warranty Deed by and between Registrant, Grantor, and       *
         Oxford Place Apartments Limited Partnership, Grantee, dated
         December, 1993.

10EE.    Agreement to Cause Early Expiration of Term of Ground Lease by      *
         and between Oxford Place Apartments Limited Partnership and
         Registrant dated as of December 29, 1993.
<PAGE>
 
Exhibit                                                                    Page
Number                                                                    Number
------                                                                    ------

10FF.    Discharge of Mortgage and Security Agreement executed by            *
         Registrant, dated December, 1993.

10GG.    Termination of Collateral Assignment of Lease or Leases             *
         executed by Registrant, dated December, 1993.

10HH.    Consent letter given by Registrant regarding sale of property       *
         dated December 29, 1993.

10II.    Construction Loan Agreement dated January 1, 1996 by and            *
         between Willows Concord Venture, A California Limited
         Partnership as Borrower, and New England Life Pension
         Properties II; A Real Estate Limited Partnership as Lender.

27.      Financial Data Schedule



*        Previously filed and incorporated herein by reference.
<PAGE>
 
                                   SIGNATURES
                                   ----------


         Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                   NEW ENGLAND LIFE PENSION PROPERTIES II;
                                   A REAL ESTATE LIMITED PARTNERSHIP



Date:  March 25, 1999              By:  /s/ J. Christopher Meyer, III
                                      -----------------------------------
                                            J. Christopher Meyer, III
                                            President of the
                                            Managing General Partner

         Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.

         Signature                    Title                           Date
         ---------                    -----                           ----


/s/  J. Christopher Meyer, III        President                  March 25, 1999
--------------------------------      Chief Executive Officer
     J. Christopher Meyer, III        and Director


/s/  Pamela J. Herbst                 Vice President             March 25, 1999
---------------------------           and Director
     Pamela J. Herbst


/s/  J. Grant Monahon                 Vice President             March 25, 1999
---------------------------           and Director
     J. Grant Monahon


/s/  James J. Finnegan                Vice President             March 25, 1999
---------------------------
     James J. Finnegan


/s/  Karin J. Lagerlund               Treasurer and Principal    March 25, 1999
---------------------------           Financial and
     Karin J. Lagerlund               Accounting Officer